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The second stage of my career was spent in high-tech hardware and software companies, where I learned about supply chains and distribution channels. By this point, globalization was in full swing, and I was witness to a sweeping transition from heavy vertical integration to heavy outsourcing.

I saw how to use infrastructure and component costs to our strategic advantage. One company I worked for, while it was a much smaller entity, drove an entrenched multibillion dollar industry leader to the brink of bankruptcy. It developed a single-minded channel strategy, and then provided liberal margins to resellers, enabled by lower manufacturing costs in Taiwan.

Our competitor was stuck with sales overhead it couldn’t shed fast enough. It was an eye-opener: the unique power of the supply chain in all its glory.

According to the San Jose Mercury News, when factories in China build products for global brands, they get “four pennies on the dollar” for a pair of Nike shoes, or maybe $25 dollars from a popular consumer electronics device that sells for $750. They leave “a boatload of money” on the table, according to the secretary-general of the China Industrial Overseas Development and Planning Association.

So China is no longer satisfied with being just the world’s factory—it wants to move to the “top” of the supply chain where margins are fattest. To do that, the country needs it own mega brand names, and intellectual property. Lenovo was purchased from IBM, Volvo was purchased from Ford. But much, much more needs to be done.

And they need to move quickly, as new contract manufacturing aspirants from Mexico, Eastern Europe, and even Vietnam nip at their heels with even lower component costs and wages.

Anticipate. The Book.

ANTICIPATE. The Architecture of Small Team Innovation and Product Success. A hardcover edition (192 pp., 22 charts) with a $24.95 suggested retail price is available at Amazon. An e-book version for $9.99 is also available for the Amazon Kindle, Apple iPad/iPhone/iPod, Kobo, and Barnes & Noble Nook.